Springtime Price Volatility: Expect Record Swings

By Richard Brock

Tue, 2011-03-29 (All day)

There is certainly no lack of fundamental changes impacting grain prices that will influence price swings this spring: worldwide economic turmoil, Egypt, Libya and the earthquake in Japan. All of these factors providing extreme unknowns not only to the energy markets, but also to the grain and livestock markets.

The nuclear crisis in Japan may be one of the biggest factors. Imagine what this is doing to economies throughout the world, such as the impact on Hawaiian tourism. Any business that does trade with Japan is making contingency plans.

If anyone tells you they know exactly what this means for commodity prices, they are either kidding themselves or trying to kid you. No one knows what the exact outcome of this volatility is going to be.

A few things we do know:

We have to get the corn, soybean and cotton crop planted in the U.S. Regardless of what’s going on around the world we need big production here.

Demand for U.S. agricultural products worldwide has thus far not been hurt. People still need to eat.

Energy flows have not been obstructed. No crude-oil shipments have been stopped. There has been absolutely no disruption in energy channels at all as I write this in mid-March.

How to think

In times like this, it’s best to think more in terms of profitability than it is in terms of price outlook. Whether you are a corn, soybean or cotton producer, in the face of this volatility you’re still looking at record profits for this coming year’s crop. At these levels, you should be locking in selling prices on 50% or more of production. Profits like this have historically been known to dissipate very quickly. Don’t let them get away.

Specifically, new-crop December corn prices in the high $5 and low $6 are offers that should be well above the expected average for the whole crop year.

November soybeans approaching $13 also are at a level that should be substantially above the average price of the year. These are price levels that are also going to be very supportive to farmland values over the coming months and when you add the potential for increasing yields, farming incomes in 2011 will likely be at new, all-time record highs.